(Bloomberg) — ServiceNow Inc. provided a sales outlook for the quarter that was slightly lower than analysts’ estimates, suggesting that companies’ budgets for software purchases remain tight. Shares fell about 5% in extended trading.
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Subscription sales, which account for the bulk of the company’s revenue, will increase about 22% to $2.53 billion in the period ending in June, ServiceNow said in a statement Wednesday. Analysts on average estimated $2.54 billion. Current outstanding performance obligations, a measure of contracted sales, will increase about 21% from a year ago, ServiceNow said, also in line with analyst estimates.
Shares fell to a low of $692 in extended trading after closing at $746.29 in New York. The stock, which has surged 82% in 2023, is up 5.6% so far this year, trailing the S&P 500 Information Technology Index by less than a percentage point.
The results were “just a bit short of what are still high expectations” for the company, wrote Kirk Materne, an analyst at Evercore ISI. Ahead of the results, Guggenheim analyst John DiFucci wrote that ServiceNow’s high valuation meant any “hiccups” in its earnings report could prompt investors to sell the stock.
The Santa Clara, Calif.-based company creates applications that help businesses organize and automate their personnel and information technology operations. Late last year, the company launched a higher tier for its platform, which includes generative artificial intelligence tools. The new AI-oriented tier is ServiceNow’s fastest-growing product, CEO Bill McDermott said in an interview. AI products will help increase revenue this year, he added.
In the first quarter, subscription revenue rose 25% to $2.52 billion, in line with analysts’ average estimate, according to data compiled by Bloomberg. Earnings, excluding certain items, came to $3.41 per share, beating the average estimate of $3.16. McDermott attributed the improved profits to steady sales growth and the company’s low overhead costs.
The company had 1,933 customers spending more than $1 million annually in the period ended March 31, an increase of 15% from the previous year. ServiceNow also highlighted several large deals, saying there were eight deals during the quarter with an annual contract value of more than $5 million. Customers such as Microsoft Corp. and International Business Machines Corp. contributed to this series of important transactions, McDermott said.
While other companies like IBM and Salesforce Inc. have recently evaluated or announced large-scale acquisitions, McDermott said ServiceNow is not considering large deals. “We don’t need an acquisition because of our massive growth,” he said.
(Updates with analyst comments in fourth paragraph.)
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